Melbourne to overtake Sydney in property growth, say experts

Most fundamental to Reid's assessment, is the GFC and banking industry crisis which has hit Sydney more than any other capital, as most banks are based there.

Contrastingly, Victoria's economy looks brighter and more stable: ANZ's Australian Property Outlook stated that Victoria is expected to outperform the national economy over the next few years, making residents more comfortable to buy.

Experts also believe migration and the First Home Owner Grant (FHOG) is at the heart of the expected value boost. Melbourne is the fastest-growing capital city, gaining more than 70,000 residents last year, with the population expected to exceed 4 million in 2009.

This puts rental vacancy at all-time lows (1.4 percent) and makes it more appealing for first-time homebuyers to get into the game. And they certainly have: first-time homebuyers accounted for more than 50 percent of owner-occupied purchases in April, and that number is expected to rise.

There are, according to Reid, a number of other reasons, beyond the charts and graphs, why Melbourne is expected to overtake Sydney.

Reid believes that the lay of Sydney's land means it can't outgrow Melbourne. Sandwiched between the Blue Mountains and the coast, and winding around the harbour's numerous bottlenecked coves and sheer hills, Sydney simply doesn't have much room left for new development. That is, unless you want to spend a few hours in a car or train, commuting. In contrast, Melbourne's river and bay-based location means it can grow outward, while remaining accessible for commuters.

Also among Melbourne's strengths, according to Reid, is its blossoming reputation for sustainability, a progressive state government, solid transport infrastructure, and a cultural openness to foreign students and overseas migrants.

Although some of Reid's suggested strengths appear tenuous, it's difficult to argue with the numbers: the median house price in Melbourne is $436,548, while the median in Sydney is almost $100,000 more expensive at $522,797, according to RP Data. This takes into account that at 4.5 percent, Melbourne prices have jumped 0.6 percentage points higher than Sydney's 3.9 percent increase in the past year.

Although expert's views are yet to be proven true, May's Residex newsletter bids a stern warning to the Harbour City.

"Sydney now presents as the capital city with the lowest average annual growth rate over the last 20 years," Residex stated. "This fall from grace has largely happened in the last decade as housing costs became more unaffordable than any other capital city."

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